External Control Mechanisms Research Articles

Intelligence, Crisis, and Democracy: Institutional Punctuations in Brazil, Colombia, South Africa, and India

This article analyzes why institutional crises are bound to happen and how they impact on national intelligence systems’ development. Punctuated Equilibrium theory is reviewed and employed to explain one institutional crisis in each of Brazil, Colombia, South Africa, and India. In Brazil, the case study is the fall of the Brazilian Intelligence Agency (ABIN) director in 2008, following the Satiagraha operation conducted by the Federal Police Department (DPF). In Colombia, the 2009 wiretapping scandal known as chuzadas is examined. In South Africa, the investigation in Project Avani (2006–8) is reviewed. Finally, in India the case study is the intelligence crisis following the Mumbai terrorist attacks in 2008. We found that institutional crises are inevitable because there are tensions between security and democracy, both being co-evolutionary dimensions of successful contemporary state building. However, the impacts of such crises vary across the four cases pending on three variables: (1) degree of functional specialization inside the national intelligence system; (2) degree of external public control over the national intelligence system; (3) whether effectiveness, legitimacy or both were the main drivers of the crisis. Our analysis of the four case studies suggests that the amount of positive institutional change in the aftermath of an intelligence crisis is greater in countries with more functional specialization and stronger external control mechanisms.

The 1920 Farrow's Bank failure: a case of managerial hubris?

Purpose– The aim of this paper is to evaluate the extent to which hubristic behaviour on the part of Thomas Farrow contributed to the downfall of Farrow's Bank in 1920.Design/methodology/approach– The article traces the way in which Thomas Farrow's behaviour changed over the course of his managerial career using primary sources obtained from various British archives, including: court records, witness statements, auditors' reports, newspapers, journals, and personal letters. The article then evaluates Farrow's actions in relation to the criteria outlined in Petit and Bollaert's “Framework for diagnosing CEO hubris” so as to assess how far he can be said to have become afflicted by managerial hubris.Findings– All the collected evidence points to the conclusion that Thomas Farrow had, by the time of the Bank's collapse in 1920, become afflicted by managerial hubris. This was reflected most clearly in the fact that he increasingly came to view himself as being somehow above and beyond the laws of the wider community. As a result, he felt little compunction about fraudulently writing-up the Bank's assets so as to cover the huge losses that his reckless investments had produced.Practical implications– The Farrow's Bank episode confirms that the probability of management hubris materialising is enhanced when external control mechanisms are either lacking or inefficiently applied. On top of this, the amateurish organizational set-up of the Bank also suggests that the likelihood of hubris syndrome developing is enhanced when organizations themselves grant too much discretion to their leaders.Originality/value– The paper breaks new ground by applying the latest management and psychology theories on the subject of leadership hubris to the field of financial management. Its value lies in the fact that it provides scholars and practitioners with an in-depth insight into how hubris syndrome can develop in organizational settings.

Optimal Supervisory Control of Flexible Manufacturing Systems by Petri Nets: A Set Classification Approach

Supervisory control is usually considered as an external control mechanism to a system by controlling the occurrences of its controllable events. There exist Petri net models whose legal reachability spaces are nonconvex. In this case, they cannot be optimally controlled by the conjunctions of linear constraints. For Petri net models of flexible manufacturing systems, this work proposes a method to classify the legal markings into several subsets. Each subset is associated with a linear constraint that can forbid all first-met bad markings. Then, the disjunctions of the obtained constraints can make all legal markings reachable and forbid all first-met bad markings, i.e., the controlled net is live and maximally permissive. An integer linear programming model is formulated to minimize the number of the constraints. A supervisory structure is also proposed to implement the disjunctions of the constraints. Finally, examples are provided to illustrate the proposed method.

Coordinating Adjudication Processes

International investment tribunals, like all other international courts and tribunals, are created equal. This chapter focuses on genuine decisional fragmentation and the coordination of proceedings within the investment treaty regime, i.e. between parallel and subsequent investment arbitrations rather than cross-regime coordination of, for example, investment arbitrations and World Trade Organization (WTO) dispute settlement. Decisional fragmentation refers to divergent rulings in cases that share the same factual matrix. Numerous authors posit that inconsistent decisions are a particular risk in investment arbitration given the lack of internal (e.g. stare decisis) as well as external control mechanisms to ensure uniform arbitral decisions. The chapter examines what coordination tasks arise in international investment law (IIL), what the stakeholder interests related to these coordination tasks are and how overlapping jurisdictions of investment tribunals can be managed institutionally and procedurally. The distinction between jurisdiction and admissibility is an important element of successfully coordinating parallel investment arbitrations. The major advantage of declaring claims inadmissible is that it allows tribunals to fulfil their jurisdictional mandate – which many investments tribunals are keen to do – while coordinating proceedings through the lever of admissibility. After describing the structural features of IIL, and in particular the absence of stare decisis, Section 2 examines three coordination tasks that arise in IIL: related proceedings, mass claims and derivative shareholder claims.

A Model for the Interest Margin of a Risk-neutral Bank. The Role of the Bank Orientation

This paper examines the impact of the bank orientation on classical banking business, distinguishing between shareholder and stakeholder banks, and analyzes the preconditions for positive social welfare effects from the existence of stakeholder banks. For this reason we develop a theoretical bank decision model based on the utility approach and focus on the determination of the interest margin. Vis-a-vis previous studies, we connect to the recent literature on the agency view considering the lessons from recent financial developments. Moreover, we study the influence of the social mission on the bank pricing strategy, merging these two different fields for the first time. The results highlight the fundamental role of a strict and prudential regulation of the social mission as well as of the existence of internal and external control mechanisms, in order to avoid a misuse of stakeholder banks for distorting aims, to increase the system stability and to reduce market failures. Therefore, a correct implementation of these aspects represents a precondition for a positive contribution of stakeholder banks to the social welfare.

我国上市公司治理结构研究

本文首先分析了我国上市公司的股权结构，并分析了在这种特殊的股权结构下，内部治理机制和外部公司治理机制存在的缺陷。最后提出通过提高机构投资者的持股比例，优化上市公司股权结构，从而改善其治理结构。 This paper analyses the ownership structure of Chinese listed companies. It also analyses the problems that the internal and external control mechanisms have under such a special ownership structure. Finally, this paper suggests that the institutional investors in Chinese listed companies should be developed greatly, which will improve the ownership structure and the governance structure of the companies.

The Relationship Between Institutional Investment and Earnings Management

The emergence of corporate scandals at the end of the 20th and beginning of the 21th century raised doubts regarding the integrity of financial reporting and the soundness of firms' corporate governance practices. The practice of earnings management is considered to be one of the important causes of these scandals due to its harm to the transparency and quality of financial statements. The discretion exercised by managers in accounting result in agency costs arising from the mismatch between the goals and desires of the principle and the agent causing investors to make suboptimal decisions. The recent surge in institutional investors' shares and associated degree of activism increased their importance as an external control mechanism of corporate governance. Accordingly, the primary purpose of this study is to evaluate the role of these investors on earnings management and alignment of the interests of owners and managers within the context of agency theory. Consequently, two main hypotheses; namely, active monitoring and managerial myopia induced by institutional investors are tested by panel data analysis utilizing data belonging to the firms listed on Borsa Istanbul during the 7 year period between 2005 and 2011, inclusive. The absolute value of discretionary accruals obtained from the performance adjusted cross-sectional industry based accrual model proposed by Kothari, Leone and Wasley (2005) is used as the proxy of earnings management to evaluate whether the presence of institutional investors mitigate or stimulate managers' discretionary accounting practices. Additionally, further analysis is conducted to evaluate the existence of monitoring and clientele effects to better interpret the direction of the relationship between the associated variables of interest.

Impression Management and Annual Report Narratives: The Effects of Internal and External Control Mechanisms in a Non-Anglo-Saxon Context

This study extends impression management literature by testing whether internal control mechanisms and other external control mechanisms are effective in controlling potentially misleading disclosure in management reporting.Because agency conflicts depend on environmental settings, impression management mechanisms can differ among countries. This study enlarges previous evidence by focusing on non-Anglo-Saxon countries. Italy is worth studying due to the similarities that Italian institutional environment shows with many other countries, at least in Continental Europe. Moreover, management reporting disclosure in Italy is essentially voluntary and potentially highly discretional.I develop a composite measure of disclosure bias, based on four different techniques of impression management, to assess the level of misleading disclosure included in the area of management reporting devoted to the analysis of firm performance. The findings, based on a sample of Italian listed companies, confirm the presence of self-serving disclosure in management reporting. Additionally, I find that the proportion of independent directors and the degree of foreign activity are significantly and negatively correlated with disclosure bias scores. Relevant operative implications involving the quality of management reporting disclosure in non-Anglo-Saxon countries are discussed.

Earnings Management, Capital Structure and the Role of Institutional Environments

This paper examines the effect of earnings management on financial leverage and how this relation is influenced by institutional environments by employing a large panel of 25,798 firms across 37 countries spanning the years 1989 to 2009. We find that firms with high earnings management activities are associated with high corporate leverage. More importantly, this positive relation is attenuated by strong institutional environments. Our results lend strong support to the notions that (1) both corporate debt and institutional environments can be served as external control mechanisms to alleviate the agency cost of free cash flow; and (2) it is less costly to rely on institutional environments than debt. Various robustness tests confirm our main conclusions.

Hedge Funds and their (Non)regulation

The objective of this contribution is not only to explain the position of institutional investors on global capital markets, but also evaluate their impact on the operation of financial systems. The core of this contribution is dedicated to hedge funds that in the period before the outbreak of global financial crisis were not subjected to almost any regulation, except for some dishonest practices. Institutional response to the global financial crisis however changed significantly the regulatory-supervisory approach also to hedge funds. The Dodd-Frank Act introduced quite promptly sensitive registration of important investment managers of hedge funds in the USA. At the same time, the new American financial legislation passed the duty for managers of hedge funds and other private funds to keep prescribed records. On the other hand, the European directive on managers of alternative investment funds has a very restrictive nature, because it implements a standard license system, costly internal and external control mechanisms, and increases inadequately powers of supervisory authorities.

On Stem Cells in the Human Breast

Petersen and Polyak (2011) elegantly explain the developmental hierarchy of the human mammary gland as it is currently understood. It is amazing that the small pool of stem cells can be cyclically called on to give rise to the progenitors and more differentiated myoepithelial and luminal epithelial cells that are needed for expansion during monthly estrous cycles and in preparation for lactation. How do the stem cells respond so perfectly and repetitively throughout a woman’s childbearing years? Do stem cells harbor internal circadian clocks that work in time with similar clocks in the endocrine system and ovaries? Or are mammary stem cells able to respond to shifting physiological needs of the organism because their functions are controlled by their microenvironment, which changes with the ebb and flow of the physiological tide? That estrous cycles can vary according to life’s circumstances (e.g., changes in nutrition, exercise, or stress) and because lengths of pregnancies and lactation periods differ for each pregnancy, it seems likely that mammary stem cells are governed by an external control mechanism that interacts with systemic changes in physiology. That stem cells and all of their progeny share identical genomes, and that stem cells reside inside niche microenvironments that are completely unique as compared to those of the surrounding tissue, suggests that microenvironments exert a tremendous influence over stem cell behavior. Even mathematical models of hematopoiesis suggested that stem cell-extrinsic regulation was the best way to explain why stem cells responded to a wide variety of physiological needs (Loeffler and Roeder 2002; Roeder and Lorenz 2006). Experimentally, microenvironmental control of mammary progenitors, hematopoietic stem cells, embryonic stem cells, and neural progenitors has been shown by use of functional assays on arrayed combinatorial microenvironments (Flaim et al. 2005; Soen et al. 2006; LaBarge et al. 2009; Lutolf et al. 2009). And perhaps the grandest demonstration of the power of the microenvironment over stem cell function was shown repeatedly when adult stem cells from one tissue were shown to give rise to other tissues after they were placed in tissue-specific microenvironments different from their native ones (Blau et al. 2001; Boulanger et al. 2007; Booth et al. 2008). An important likelihood that arises from those experiments is that the phenotype of a stem cell is probably affected by its microenvironment (LaBarge et al. 2007). To completely understand the identity and control of mammary stem cells, we must meticulously define the microenvironment(s) they inhabit. As Petersen and Polyak point out, the methodology used to describe the stem cell hierarchy in adult hematopoietic systems has guided many subsequent studies aimed at identifying hierarchies in epithelial tissues. Accordingly, tissues are dissociated into suspensions of single cells, fractionated with a cell sorting technology, and the fractions are assayed for stem cell activity in a number of culture assays and in vivo when possible. Demonstration that a single cell can give rise to the tissue in question is often referred to as the “gold standard” experiment, and it is an unfortunate burden of proof held over from the hematopoietic field. Blood is an interesting tissue in that centers for hematopoiesis shift throughout development among locations that are anatomically close to the circulation, and it is thought that in adults, blood is produced from niches in marrow and vasculature (Sacchetti et al. 2007; Hooper et al. 2009; Butler et al. 2010). Thus, it makes sense that a single hematopoietic stem cell should regenerate the blood as nothing more is being asked of it than to do exactly what it was meant to, and to do it in the perfect microenvironment. Moreover, in the hematopoiesis model, where the microenvironment was essentially perfect, it stands to reason that one would only observe different activities according to the fraction from which single cells were derived. These facts may help explain why it has taken so long for acceptance of the idea that microenvironments can control stem cell activity. By comparison, adult mammary epithelial stem cells are distinct from the neonatal stem cells that made the initial mammary rudiment, and the adult stem cells evolved within an intricate epithelial architecture that was within a tissue stroma. That a single mouse mammary stem cell could give rise to an outgrowth was shown to occur at very low frequency (Shackleton et al. 2006; Stingl et al. 2006), and it has yet to be shown that a single normal human mammary stem cell can generate an outgrowth in a murine fat pad. Given the biological differences between blood and mammary epithelium, it is no surprise that the identity of human mammary stem cells and the mechanisms that govern them are still hotly debated.

Philosophy as a Private Language

Philosophy (and its corollaries in the human sciences such as literary, social and political theory) is distinguished from other disciplines by a more thoroughgoing emphasis on the a priori. Philosophy makes no claims to predictive power; nor does it aim to conform to popular opinion (beyond ordinary intuitions as recorded by ‘thought experiments’). Many philosophers view the discipline’s self-exemption from ‘real world’ empirical testing as a non-issue or even an advantage, in allowing philosophy to focus on universal and necessary truths. This article argues otherwise. The non-instrumentality of philosophical discourse renders it into a collective private language, impairing the discipline’s ability to judge the quality of its own output. The natural sciences and other technical disciplines offer the non-expert ‘windows of scrutiny’ into their respective methodologies, through numerous findings that can be easily and independently tested by amateurs. Such outside scrutiny provides a mechanism of external quality control, mitigating the internal effects of cognitive bias and institutionalised conformity upon the discourses of technical disciplines. In contrast, the conclusions of philosophy are not testable without in-depth knowledge of the methods by which they are arrived at; knowledge which can apparently only be gained through an extensive program of study, in philosophy. This epistemic circularity renders the program (even one of self-study) into a ‘black box’ in which the internal influence of cognitive biases and conformity effects cannot be independently assessed. The black box of philosophy is, in all relevant respects, analogous to the black box of the Cartesian mind that is the subject of Wittgenstein’s private language argument.

Me or We: The Effects of CEO Organizational Identification on Agency Costs

The corporate governance literature on potential remedies for the agency problem has focused largely on external control mechanisms, especially board independence. We instead consider how an internal, psychological factor—CEO organizational identification—may influence the extent to which firms incur agency costs, including those entailed by the decoupling of CEO pay and perquisites from firm performance. Our theory and findings explain why a CEO with high organizational identification may avoid pursuit of personal gains that can harm the firm he or she leads and its image. We further show how board independence is less likely to reduce agency costs when CEO organizational identification is high.

The Effectiveness Of Internal And External Mechanisms Of Corporate Control

This research reflects a recent trend toward the development of an overall understanding of corporate control. Previous research has examined CEO turnover and corporate takeovers separately. This research provides a more complete analysis of the corporate control of the firm conditioned on previous events over the period 1978 - 1988. Logistic regression analyses indicate that the probability of a takeover offer is highest for firms performing poorly which have not previously replaced their CEO. Debt, the percentages of stock held by the ceo or outside investor, and the existence of an antitakeover mechanism also affect the probability of a firm receiving a takeover offer. Results support the theory that external corporate control mechanisms do function when internal mechanisms have failed to function. Additionally, results suggest the external labor market is working to attract the CEO of a firm performing well.

Do progressive goverments undertake different debt burdens? partisan vs. electoral cycles

Public debt has traditionally been explained mainly by two political factors: a progressive ideology and the electoral cycle. The aim of this paper is to demonstrate how these two factors influence the behavior of Spanish local governments as regards indebtedness, and also how indebtedness is influenced by the interaction of ideology and the electoral cycle.Different dependence models were estimated using panel data methodology based on a sample comprised of Spanish provincial capitals and towns with populations over 50,000, for a total of 148 town councils. The time frame corresponds to the fiscal years 1988 to 2008, inclusive.The results show that in an electoral year all politicians behave opportunistically, giving rise to an important increase in public debt in relation to municipal revenue, although progressive incumbents incur three times more debt than those of the opposite ideology. Moreover, the presence of conservative parties in government has tended to significantly attenuate this behavior in years prior to elections, whereas progressive or left-wing parties have not. It must also be noted that partisan and electoral business cycles have been mitigated since 2002, when the Budgetary Stability Law came into effect, imposing limits on the debt of subnational administrations.The empirical evidence obtained points to the need to perfect internal and external control mechanisms in order to avoid a breakdown in the stability policy and the risk of debt becoming untenable, thus achieving greater budgetary discipline.

An Examination of the Principles of Corporate Governance from an Islamic Perspective: Evidence from Pakistan

AbstractThis article attempts and establishes a positive and direct link between Islamic law and the principles of corporate governance, using practical examples from the banking and finance industry. Several theoretical approaches are implemented to analyse the subject of corporate governance. Commentators have previously linked theories to explain the elements of corporate governance and its essential principles, ranging from board activities to internal control mechanisms such as auditing. Once proven that there is a link, this research attempts to analyse how well or how this Islamic approach to corporate governance is enriched within organisations based in Pakistan. However, at the same time, despite the Islamic element involving accountability to God and individual responsibilities under Islam as a religion, one finds immense similarities to the types of internal and external control mechanisms. There is a similarity in the way an Islamic organisation is counselled by the Shariah Supervisory Board just as a conventional Board would perform their actions. Similar problems are associated in organisations implementing Islamic principles of corporate governance. The main difference unearthed by this research is the element of religious beliefs. Pakistan as a country exemplifies how the development of corporate governance code is more inclined towards the Anglo-Saxon model than towards the Islamic perspective, despite a strong Islamic law background. However, this does not mean that one perspective is better than the other. It just illustrates the flexibility of the subject of corporate governance and its principles. The task to choose the type of principles to adhere to is entirely up to the region, culture, and the corporate structure.

Corporate Governance: Impact on Internal Control in selected commercial Banks in Bangladesh

Corporate Governance is a widely discussed issue in the current management literature. The concept of corporate governance is a relatively new challenge that has evolved over the last few decades. After the recognition of the concept of Corporate Governance in businesses the right to be informed of those various groups has been established whose interest is affected by the activities of a business organization. A shareholder who has invested his fund in a company has the right to know, how efficiently the fund is being used likewise employees, customers, proximate community, government and society, in general, have right to be informed about how efficiently the company is dealing with their respective interests. On the basis of such information, they may decide to what extent they should support the activities of the companies where they are investing their valuable resources and efforts.
 There are various forms of business, but the corporate form of business (i.e. company) is playing a dominant role in the business sector. In the corporate form of business, shareholders nominate or elect a Board of Directors for governing their business. The Board of Directors is accountable to the shareholders for their activities and the accountability of these activities is treated as Corporate Governance. It can be defined as an organizational control device, which is a hybrid of internal and external control mechanisms with a view to achieving efficient utilization of corporate resources. So, proper application of Corporate Governance norms can accelerate effectiveness and transparency in the functioning of a company. 
 JEL Classification Code: E52, E58, O23

Interinstitutional Review of Slides for Forensic Pathology

Because of the specific structure of forensic medicine in Turkey, reexamination of histopathologic specimens is a frequent practice. The aim of the present study is the assessment of microscopic diagnostic consistency in forensic pathology between different laboratories. Reports of the Council of Forensic Medicine between 2001 and 2004 were examined, and 150 cases with second pathologic examination were found. Results of histopathologic reports from peripheral laboratories were compared with those made by the Council pathologists with regard to diagnostic consistency. Consistency was assessed in 3 groups and 1 subgroup. Group 1, consistent and minor inconsistency; includes a major consistency subgroup. Group 2, major inconsistency, is the second diagnosis which is lethal; group 3, major inconsistency, is the first diagnosis which is lethal. The lung was found to be the organ with the highest frequency of diagnostic major inconsistency (group 2 and 3) and major consistency. Bronchopneumonia was the most common diagnosis. The brain had the highest frequency of intercenter diagnostic overall consistency (90.2%, group 1). Myocardial infarction was the diagnosis most frequently rejected on reevaluation (group 3). In conclusion, forensic pathology requires different experience than surgical ones. In cases of discrepancy between the anamnesis of the lethal event and pathologic findings, reevaluation of specimen is mandatory to avoid any diagnostic errors. Quality assurance systems with all include internal and external control mechanisms will improve the diagnostic reliability.

The corporate governance of Benedictine abbeys

PurposeThis paper aims to analyse the governance structure of monasteries to gain new insights and apply them to solve agency problems of modern corporations. In an historic analysis of crises and closures it asks, if Benedictine monasteries were and are capable of solving agency problems. The analysis shows that monasteries established basic governance instruments very early and therefore were able to survive for centuries.Design/methodology/approachThe paper uses a dataset of all Benedictine abbeys that ever existed in Bavaria, Baden‐Württemberg, and German‐speaking Switzerland to determine their lifespan and the reasons for closures. The governance mechanisms are analyzed in detail. Finally, it draws conclusions relevant to the modern corporation. The theoretical foundations are based upon principal agency theory, psychological economics, as well as embeddedness theory.FindingsThe monasteries that are examined show an average lifetime of almost 500 years and only a quarter of them dissolved as a result of agency problems. This paper argues that this success is due to an appropriate governance structure that relies strongly on internal control mechanisms.Research limitations/implicationsBenedictine monasteries and stock corporations differ fundamentally regarding their goals. Additional limitations of the monastic approach are the tendency to promote groupthink, the danger of dictatorship and the life long commitment.Practical implicationsThe paper adds new insights into the corporate governance debate designed to solve current agency problems and facilitate better control.Originality/valueBy analyzing monasteries, a new approach is offered to understand the efficiency of internal behavioral incentives and their combination with external control mechanisms in corporate governance.

The reach of control in government administration of the republic of Slovenia

The monitoring of government administration performance is an important element of supervision over its appropriate performance. Control over working processes plays a central role in the process of adaptation and development of public administration as well as enterprise development. In this paper, we suggest that the adoption of legislation that would prescribe obligatory elements of transparency based on modern information technology (from the intranet to the internet) would substantially improve the range and depth of control of government administration from the point of view of internal and external control mechanisms and therefore contribute to the effectiveness of the public sector.